37 lines
2.7 KiB
Plaintext
37 lines
2.7 KiB
Plaintext
968 Glossary
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types of diagonal spreads are diagonal bull spreads, diagonal bear spreads, and
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diagonal butterfly spreads.
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Discount: an option is trading at a discount if it is trading for less than its intrinsic
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value. A future is trading at a discount if it is trading at a price less than the cash
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price of its underlying index or commodity. See also Intrinsic Value, Parity.
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Discount Arbitrage: a riskless arbitrage in which a discount option is purchased
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and an opposite position is taken in the underlying security. The arbitrageur may
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either buy a call at a discount and simultaneously sell the underlying security
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(basic call arbitrage), or buy a put at a discount and simultaneously buy the under
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lying security (basic put arbitrage). See also Discount.
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Discretion: see Limit Order, Market Not Held Order.
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Dividend Arbitrage: in the riskless sense, an arbitrage in which a put is purchased
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and so is the underlying stock. The put is purchased when it has time value pre
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mium less than the impending dividend payment by the underlying stock. The
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transaction is closed after the stock goes ex-dividend. Also used to denote a form
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of risk arbitrage in which a similar procedure is followed, except that the amount
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of the impending dividend is unknown and therefore risk is involved in the trans
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action. See also Ex-Dividend, Time Value Premium.
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Divisor: a mathematical quantity used to compute an index. It is initially an arbitrary
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number that reduces the index value to a small, workable number. Thereafter the
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divisor is adjusted for stock splits (price-weighted index) or additional issues of
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stock (capitalization-weighted index).
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Downside Protection: generally used in connection with covered call writing, this
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is the cushion against loss, in case of a price decline by the underlying security, that
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is afforded by the written call option. Alternatively, it may be expressed in terms
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of the distance the stock could fall before the total position becomes a loss (an
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amount equal to the option premium), or it can be expressed as percentage of the
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current stock price. See also Covered Call Write.
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Dynamic: for option strategies, describing analyses made during the course of
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changing security prices and during the passage of time. This is as opposed to an
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analysis made at expiration of the options used in the strategy. A dynamic break
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even point is one that changes as time passes. A dynamic follow-up action is one
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that will change as either the security price changes or the option price changes or
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time passes. See also Break-Even Point, Follow-Up Action.
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Early Exercise (assignment): the exercise or assignment of an option contract
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before its expiration date. |